Inclusionary Zoning: One Tool for Creating Affordable Housing

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Affordable housing continues to be a big issue facing many communities in Washington and the rest of the United States. Many people are either paying more than 30% of their household income for housing (especially lower income households) or being forced to live far away from their place of employment (which leads to long commutes and increased traffic congestion).

Most local governments are not in the business of building housing, so what can they do to address the affordable housing problem?

One method is a regulatory tool called 'inclusionary zoning'.  Inclusionary zoning either requires developers to include affordable units in new residential development projects or offers incentives to encourage the addition of affordable units.

Alternatively, some jurisdictions require a 'fee in lieu of' or payment for construction of such units elsewhere in the community.

Types of Inclusionary Zoning Programs

There are two basic types of inclusionary zoning programs: voluntary and mandatory.

Voluntary

Under a voluntary inclusionary zoning program, it is up to the developer to decide whether or not to use various incentives or bonuses in exchange for providing a specified number of affordable units. Washington cities that have adopted voluntary programs include Bellevue, Kirkland, Marysville and Tacoma. 

However, if not well-aligned with the local housing market, voluntary programs may go unused, as developers choose the simpler path of building only market-rate housing.

Mandatory

Conversely, a mandatory inclusionary zoning program requires the construction of a minimum number of affordable units in areas identified in a local government's zoning code. A local government may choose to offer an additional density bonus if the number of affordable dwelling units goes beyond the mandated minimum. 

Mandatory programs may also include a 'fee-in-lieu-of' option for developers where they pay a fee in lieu of adding affordable units to their development project. Such payments are then used to fund the construction of affordable units elsewhere within the jurisdiction. For example, see Kirkland Zoning Code, Ch. 112, Sec. 112.30 on Alternative Compliance. 

This blog will focus primarily on mandatory inclusionary zoning programs.

Who Uses Inclusionary Zoning?

Over 800 cities in the U.S. have inclusionary zoning programs, including Boston, Denver, New Orleans, Portland, Sacramento, San Francisco, San Diego, and Washington, DC.

In Washington State, there are a number of cities that use inclusionary zoning. One successful example is Redmond’s affordable housing regulations (Ch. 21.20 of the city's municipal code), which have been in place since 1995. In 2023, Redmond reported long-term affordable “contracts” on 496 dwelling units.

Federal Way has also created a sizable number of affordable units through its inclusionary zoning provisions (Sec. 19.110.010 of the city's municipal code). Other examples from Washington cities will be included throughout this blog.

Legal Basis for Inclusionary Zoning

RCW 36.70A.540 authorizes Growth Management Act (GMA) cities, towns, and counties to establish either a voluntary or mandatory inclusionary zoning program.

Incentives, such as density bonuses or height and bulk bonuses, can be offered through an inclusionary zoning program in exchange for development of affordable housing units. These housing units must meet affordability standards (for both rental and owner-occupied units) and be maintained as affordable units for a minimum of 50 years. See also WAC 365-196-870(2).

If it is a mandatory program, the local government may require a developer to build a minimum number of new affordable housing units in specific areas identified for increased residential capacity (i.e., in areas that have been upzoned). See RCW 36.70A.540(3)(d).

Before establishing such a requirement, a city or county must determine that such a zoning code change would further local growth management and housing policies.

A mandatory inclusionary zoning program adopted pursuant to RCW 36.70A.540 does not violate the provision at RCW 82.02.020, which prohibits local governments from imposing any fees on development. The legislation that enacted RCW 36.70A.540 also amended RCW 82.02.020 to provide that:

Nothing in this section limits the authority of counties, cities, or towns to implement programs consistent with RCW 36.70A.540, nor to enforce agreements made pursuant to such programs.

Under state law, local governments can also encourage construction of affordable housing through tax incentives using the Multifamily Housing Tax Exemption at RCW 84.14.

Elements of Inclusionary Zoning

Mandatory inclusionary zoning regulations will generally address, but not be limited to, the following elements: a minimum quantity of affordable housing units; targeted population to be served by the units, specified duration of unit affordability, and geographic scope.

Minimum quantity of affordable units to be provided 

This minimum is usually a percentage of a development’s total number of dwelling units. For example, Redmond and Sammamish require a minimum of 10% in most areas. Developers in Sammamish are also using the city’s affordable housing 'bonus pool' to produce more market-rate and affordable dwelling units.

Targeted income range of households to be served by the affordable housing units

RCW 36.70A.540 requires local governments to use the 80% area median income (AMI) threshold for owner-occupied units and a 60% AMI threshold for rental units. A jurisdiction may establish higher income thresholds if it can demonstrate that a higher level is needed through a local housing needs assessment.

Redmond’s target population for affordable housing is those who make equal to or less than 80% of the King County AMI adjusted for household size, while Federal Way defines “rental affordable housing” as dwelling units affordable to those with incomes at or below 50% of King County’s AMI. 

Duration of housing unit affordability

RCW 36.70A.540 requires that new affordable housing units be maintained as affordable for a minimum of 50 years. For example, inclusionary zoning programs in Issaquah and Kenmore match this requirement.

A local government may also accept payments in lieu of continuing affordability. 

Geographic scope of regulatory zoning

Inclusionary zoning regulations are usually limited to designated areas (such as downtown or mixed-use development areas), although they may be applied throughout the jurisdiction. For example, Redmond requires affordable units in all new residential and mixed use developments of 10 units or greater, while Bothell’s mandatory program applies within portions of its downtown subarea.

RCW 36.70A.540(3) requires that a local government identify those areas designated for mandatory inclusionary zoning and make findings that these areas are where increased residential development will assist in achieving local growth management and housing policy goals. 

It should be noted that RCW 36.70A.540 contains several detailed requirements beyond those described above. Planning staff should carefully review the relevant state statutes and incorporate the required provisions into local inclusionary zoning code provisions.

Pros and Cons of Inclusionary Zoning

In an active market with high demand for multifamily housing, inclusionary zoning results in the production of more affordable housing for low- and moderate-income residents. It can also result in buildings and neighborhoods that have a mix of income levels without having to rely on taxpayer funds to provide this mix.

On the con side, it may be difficult to administer an inclusionary zoning program and continue to monitor if the designated dwelling units remain affordable as time passes. 

Second, such a program will likely increase the price of the non-affordable housing units used to offset the reduced rent/sales revenue coming from the affordable units. 

Finally, if your local housing market is not strong enough, developers may decide not to build any residential housing (which might then exacerbate the affordable housing issue).

Conclusion

Local governments that have not yet enacted inclusionary zoning provisions should carefully review the requirements in RCW 36.70A.540, as well as weigh the pros and cons of inclusionary zoning in their communities before implementing such a program. If your community has an affordable housing problem and a strong demand for market-rate housing, it may be a good regulatory tool to pursue.

For more information on inclusionary zoning, see:

• Grounded Solutions Network: Inclusionary Housing (2019) – Contains tools and articles on inclusionary housing policies and programs.
• MRSC
  • Affordable Housing Techniques and Incentives – Provides an overview of techniques and incentives to encourage new affordable housing, including additional examples and resources related to inclusionary zoning.
  • MRSC Insight blogs on housing
• Puget Sound Regional Council: Inclusionary Zoning (2020) – Covers the objectives and applications of inclusionary zoning.